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Attorney General Eliot Spitzer urged the state Public Service Commission to overturn its decision last September that made it more expensive for communities served by Niagara Mohawk to form municipal electric utilities.

Spitzer, in a filing with the PSC, objected to the commission's ruling in a case involving Lakewood's attempt to form its own electric utility that would have required the village to pay $14.5 million to Niagara Mohawk if it started its own power company.

The PSC decision, which was the commission's first ruling on how to calculate exit fees included in Niagara Mohawk's rate plan, cast a pall over efforts in Lakewood, Buffalo and elsewhere within the utility's service territory, to form municipal power companies in an attempt to lower electric rates.

Municipal power supporters said the ruling would make it too expensive for communities to form their own utilities by requiring them to not only buy Niagara Mohawk's power lines and equipment, but also pay other expenses that state regulators are allowing the company to collect from its customers over the next decade or so.

Lakewood has asked the commission for a rehearing on the case and Spitzer's comments were in support of that petition. "Their comments are under review," said David Flanagan, a PSC spokesman.

Spitzer, who did not participate in the original case, said Niagara Mohawk's exit fees should cover only the value of its property and not include any of the company's so-called stranded costs. Those stranded costs cover expenses that the utility took on years ago with the blessings of regulators, including the Nine
Mile Point II nuclear plant and its $4 billion buyout of costly independent power producer contracts.

"It is unjust to ask Lakewood to pay for Niagara Mohawk's management decisions," Spitzer said in the filing.

But Stephen Brady, a Niagara Mohawk spokesman, said the company is entitled to recover those costs. "The majority of the stranded costs that are being talked about were the result of government obligations," he said. "There is policy at both the federal and the state level that utilities be allowed to recover their prudently incurred costs."

In Lakewood's case, stranded costs account for more than 80 percent of the village's $14.5 million exit fee, which equaled $7,228 for each of the village's 2,000 electric customers. The PSC ruling set the exit fee at a level that was about $9.5 million more than village officials had hoped to pay.

"It is unfair and it restricts competition," said Paul Larrabee, a Spitzer spokesman.

Niagara Mohawk officials, however, have argued that eliminating the exit fees would allow communities to avoid paying their fair share of the utility's costs and place an even greater burden on its remaining customers, who then would have to make up the difference.

"If Lakewood were to leave without paying its share of those costs, those costs would be shifted to the remaining customers," Brady said.

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